The collapse of Indy Mac Bank last week was not a surprise to many in the industry.  Washington Mutual’s stock tumbling to $3 was not a surprise to many in the industry.  A federal bailout to Fannie Mae and Freddie Mac was not a surprise to many in the industry.  If this is not a surprise to many in the industry, then perhaps this will be:  Aproximately half of the closings my colleagues and I, based on conversations with Real Estate brokers, attorneys, etc., are involved in surround a purchaser obtaining an interest only mortgage.  This is today…2008…after a near collapse of the credit market and a Real Estate bust not seen for decades.  Where then, are the people who claim this is in a surprise.  

Again, this is personal opinion, but one would think that after two years of witnessing why people who earn $40,000 annually should NOT purchase a home in downtown Brooklyn worth $800,000.00, people are nevertheless engaged in the same activity.  I simply cant fathom how there have not been more Indy Mac’s to date.  Because the problem doesn’t completely rest with the individual, it rests with the entity that is looking at an application with minimal to no net worth, and APPROVING this application for incredible sums of money.  Granted one would think that someone would want equity in their property, that they wouldn’t wait for a home to “appreciate” before trying to flip the place.  However, in spite of all of this, the serious issue we should all be wondering is how people are still obtaining mortgages for amounts they simply, by any reasonable estimation, do not qualify for.  

There is so much emphasis in the media on the idea of “subprime” loans.  There seems to be a lack of attention as to how people in New York can afford condominiums priced at $500k plus, with mortgage payments of approximately $3000/month (not counting taxes, common charges, etc.) when those individuals only bring home approximately 4k a month.  

The sad part of this is that there seems to be no lesson learned here.  People are still buying more home than they need or can afford, and banks are still enabling them to do it.  Something, at some point, has to give in this local market.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

A client came into my office recently to discuss the possibility of “shortselling” her home.  She was advised of this option by a “mortgage specialist” that she had consulted with.  The mortgage “specialist” advised her that she could sell her home for less than what the mortgage she owed was.  Furthermore, the remaining balance of the mortgage would be forgiven by the lender and she would be able to live in the house, albeit with a new owner, until such time as she had the funds to repurchase the house.  The description is insane.  

A short sale is basically a way for the banks to weigh whether they will lose more money by allowing the borrower to sell the home for less than what is owed on the mortgage, or by means of foreclosure.  In other words, If Bank A lends $100,000 to Borrower A and Borrower A knows she cannot now pay the mortgage, will Bank A lose more by allowing Borrower A to sell the property for $90,000 or by foreclosing on the property and paying fees, transaction costs, etc.  

This type of transaction is increasingly discussed in the credit crisis and real estate mess we are now involved in, but it offers little to no benefit for the person considering selling his/her home in a short sale. First and foremost, many banks are not necessarily too keen on short sales.  Many of them are now inundated with requests for short sales due to what is transpiring in the marketplace.  If they cannot give you a timely answer, your proposed purchaser may very well walk away.  If they don’t walk away, the bank can still deny the short sale, wasting time and money on your part.

Secondly, the purchaser of your home, if the short sale is in fact approved, has absolutely no obligation to keep you in the home.   If I purchased a home for less than the market value I would not want someone living there.  It simply does not make sense.  That person now has the title and can do whatever they see fit with the home.  

Finally, this does, I repeat, DOES affect your credit in a negative way.  Is it treated better than a foreclosure would be on your credit report? Yes.  But it nevertheless does impact your score in a negative way and a notation about a pre-foreclosure sale will be placed on your credit report.

The conclusion is this:  If you can sell your home for less than its worth and you can get the bank to agree not to pursue you for the balance owed (by the way whatever you receive from the sale of the home goes directly to the bank that has issued the mortgage-so you make nothing) AND you do not wish to file for Bankruptcy, then go ahead and do it.  Make sure you have an experienced attorney representing you during the process.  On the other hand, if you feel as if this will benefit you, will not harm your credit score, and you’ll be able to stay in the home, then think again.  

Here are a few articles discussing short selling for your enjoyment:

http://homebuying.about.com/od/4closureshortsales/a/shortsalebasics.htm

http://www.realestatejournal.com/columnists/housetalk/20080214-fletcher.html

http://www.bankrate.com/brm/news/real-estate/20070928_home_short_sale_a1.asp

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

It gives me a really special feeling inside when I go to a trustees meeting and see either of the following:

1. An attorney meeting with 6 of his/her clients at the same time to discuss the questions that will be asked even though each clients case may have its own issues and questions to look out for.

2. A client looking at a person wearing a suit and saying “Are you my attorney?”

Heres the deal folks, we attorneys are busy people, but the above examples are absurd and should never happen.  Bankruptcy is a complex area of law and you really need to make the right decision about who you want representing you ahead of time.  That means you should go to a number of attorneys until you feel comfortable that the attorney that you choose knows what he/she is talking about, and will know what you look like on the day of the hearing.  How you say?  Well they should probably meet with you….twice…before the hearing.  The first meeting should discuss the issues in the case, if any, the preferred way of proceeding, etc.  It should break down the items you can exempt, how Bankruptcy will effect your credit rating, how long before you get credit again, how much debt you are in, etc.  The second meeting should specifically be focused on what to expect during the meeting of the creditors.  This is serious stuff.  You should not simply go in there thinking all will be ok when your case may have complications, or more importantly, you should not go in there if you have questions that your attorney has failed to answer.  We owe this to our clients.  You pay us for a service, and we need to provide that service in a way that not only helps you, but makes sure you’re not left in the dark.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Let me just say that there are certain things Bankruptcy can do and certain things it cannot.  If you come to our firm to get a fresh start and you meet certain requirements under the Bankruptcy Code, rest assured you have a good chance of erasing your unsecured debt and getting a fresh start.  If, however, you seek to simply get rid of unsecured credit card debt, but your expenses are STILL surpassing your monthly income, then you should not be hiring an attorney.  Instead, what you should be doing is downsizing your life.  You need not worry about credit cards if, even without them, you still could not pay for your every day living expenses.  If that’s the case its time to rethink your financial life from the ground up.  House too big?  Car too expensive?  Too many dinners out?  You need to take a good hard look at these things before simply believing that Bankruptcy will cure all financial ills.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Its a telling sign of the times when a client comes in and needs to file for Bankruptcy in New York because the mortgage he thought he signed was not what it seemed.  I know what some of you out there are thinking: “They should have taken some time to read the mortgage before they signed it.”  I agree with you. However, much like many other fields out there, there were crooks in the mortgage industry who really did ruin people by making false promises backed up by false documents.  I urge all of you to seek the advice of an attorney, specifically one you trust,before signing perhaps the most important financial contract of your life.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

So heed the advice of a New York City Bankruptcy lawyer and put all of your bills on auto bill pay and watch your score rise.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Alas the question which is asked by New York City bankruptcy clients in my office is the following:  “Ok, so lets say I have some social security money in my bank account, and that brings that amount above $4,000…won’t the mean Bankruptcy trustee take all my money away.”  First…the trustee is not mean (usually) and even if he/she is mean don’t tell them that.  Second, you can find some solace in the fact that the trustee WILL NOT go after that bank account…up to $2500, so long as your social secuirty payments are deposited into that account.  For once the government actually does something thats helpful to the average person.    Again, this money is exempt regardless of whether the funds have been co-mingled.  In other words, if your social security check AND your bi-weekly wages are deposited into the same account, the money is still safe.  Again, lets not go overboard.  This isn’t mean to suggest that if your social security check is deposited into an account with $9,000 in it that you’re scott free.  You’re not.  Then again if you have $9,000 in your account and you’re filing for a Chapter 7 Bankruptcy, there is something wrong.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

New York City is burgeoning with people who have become “debt settlement counselors” almost overnight.  It does not take much to become a debt settlement counselor in New York (not discussing the relevant legal issues involved).  Put up a sign saying something to the effect of “Say No to Debt” or “Debt Be Gone”, throw up a fancy 877 number, have your secretary act as a “call center” and there you go…you’re now a debt center.

Why the sarcasm Daniel?  Good question.  In my community, many clients are coming in to explain to me that they have to file for Bankruptcy even after attempting to settle their debts.  Why you say?  Apparently the practice of debt settlement and credit counseling has grown so large that attorneys (and non-attorneys) are getting in on the action by charging EXORBITANT fees for the privilege of settling your debts for you.  What do I mean by exorbitant?  Oh lets say you owe $50,000 to about 6 separate cards and your counselor decides to charge you $10,000 in order to bring your debt down to $35,000.  Seems like a great deal.  Seems like you just saved $5,000.  Well thats right, but who is to say you could not have done that on your own.  The book I am currently working on (shameless plug), shows you how to do it on your own, and this isnt rocket science.  The collection agencies, who purchase the debt of credit card companies in bulk and make HUGE profits because they buy the debt for pennies on the dollar, are all to eager to settle your accounts for approximately 50-60% of what you owe.  

Take this example:  If you owe Amex 10,000 and you haven’t paid in 4 months, Amex send that debt to collection company A who, after several unseuccesful attempts, sells it to company B and C and so on.  Company E, who just paid $1200 for the $10,000 original debt, has no problem settling for $5,000.  It’s all a big game and whoever says it isn’t doesnt know what they’re talking about.  

So the point is there is NO REASON to pay absurd, exorbitant fees to attorneys and non attorneys to try and settle your debts when you can do it on your own.  All it takes is some time and perseverance.  

By the way, you might be wondering if I have ever done debt settlement.  I have and continue to do it.  But I don’t charge nearly as much as many others out there and I counsel my clients NOT TO HIRE ME IF THEY HAVE TIME ON THEIR HANDS!!  Literally, I say that to them…you can ask them (although I doubt they would volunteer that they came to me for problems with debt and also there is this whole attorney/client privilege thing.  I digress….)  One of the reasons my clients hire me to do this is because they are overwhelmed and they just do not have the time, money, patience, health, etc. to get through this.  Thats where I come in.  However, I am stressing you should not be paying even close to 15% of what you owe as a fee.  Its just as difficult to settle a $1,000 debt as it is to settle a $10,000 debt.  It genuinely does not take more time.  

If you need some advice as to how to help you settle debts on your own, give the office a buzz.  This isn’t a solicitation, but within 30 minutes, we can help you figure out a way for you to help yourself and save a ton of money in the process.  Once you settle your debts you’ll even have more free time to call the debt collector at odd hours of the day and pretend you are a debt collector yourself and you are collecting a debt they owe…always a fun time (I’m not allowed to advocate that but from what I have heard it is in fact quite a fun time.)  

Oh and by the way, there are several not for profit (real not for profit) agencies that will legitimately assist you in settling your debts without the absurd fees and costs.  Try the National Foundation for Credit Counseling (www.nfcc.org) as a starting point.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area.  Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

I have to admit that I have a bit of fun with debt collection agencies.  More specifically, I find it somewhat amusing to give back to those who cause ohhh so much stress for my clients.  Recently, I had a client with a great credit score who had a large amount of debt and was not a great candidate for Bankruptcy.  We began to settle all of her debts, and one of the things I noticed is that the debt collectors, and oddly the ones with the smallest amounts to collect, would make up absurd threats as to why the debt needed to be settled right now.  Among the threats:

1-We will get a judgment against her for three times the debt owed. 

Technically this isn’t really a threat or a lie per se, because generally judgments can be entered for interest, fees, etc., and the judgment can easily double or sometimes triple the amount owed.  But for a debt of $122, that will not make a huge difference and wont allow the collector to get their hands on the money any sooner.

2-We will take the debtors house and put it into foreclosure.

Really this is much like saying that because you me $100 from a bet we made on the Jets game last week, I will confiscate your car tires and sell all of your mutual fund accounts.  It’s absurd.  So long as the debt is unsecured (credit card debt), no one is touching and/or selling your house.  The best thing to do in such a situation is to tell the debt collector that your house is worth in excess of $3,000,000.00, then laugh and hang up the phone.  (Im kidding-please don’t do that.  Im not advising you to do that.  Seriously…)

3-Your client can face jail time.  

At this point, during this actual call, I asked to speak to the collectors supervisor.  Not only is this absurd, but it is illegal to threaten criminal action against an individual in such a situation.  If someone tells you that you will face jail time, speak to the higher ups right away.  

I guess I went off on a rant because this post was supposed to be about settling debts for pennies on the dollar.  Here is my advice to you then.  Do not take the collectors first 3 offers.  Keep negotiating.  The collector will tell you that his “client will never go below “70% of the amount owed”.  If you believe that, and pay that amount,  then you should also never go to a Turkish Bazaar (that’s because they bargain there also…a lot). These collectors buy your debts for pennies on the dollar, literally.  I’ve settled debts for 20% of the amount owed (Not a guarantee of future results).  So take my advice and continue to negotiate.  

Another trick they try to use is tell you that you have to pay this in one payment or the deal is off.  Nonsense.  Let me say that again.  Nonsense.  You can, and should, pay it off over at least 3 or 4 payments.  Remember, these guys know you are close to Bankruptcy where there money would just dissapear.  They want their money…and they will wait to get it.  

Ill be posting more and more tips later on, but please remember that there is a ton of room for negotiation when dealing with debt collectors…so don’t jump at the first offer.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area.  Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

While I have written about this topic before, I nevertheless wanted to write a post to make clear two certain points.  

The first point is that, with very very very limited exceptions, student loan debt is NOT dischargeable.  I have been receiving numerous emails from students wanting to know if they can discharge their student loan debt and get a “fresh start” if they do not find a “decent” paying job when they finish college.  The answer is typically no.  You would really need make to showing of an undue hardship in order to qualify to discharge your student loan debt.  Bank on the fact that barring a very severe financial crisis you will likely not be able to show such a hardship.  The lesson, as cliche as it sounds, is to never borrow more than you need.  I say this from experience.  My debt in law school was tremendous and looking back I could have been more responsible with managing the law school debt.  Do not put yourself in the same position.  

The second issue I wanted to touch upon is Bankruptcy fraud.  Its more of a serious issue than you may think.  In previous posts I have always said that Bankruptcy Trustees and credit card companies are not involved in some vast conspiracy to stop you from filing Bankruptcy forever.  Usually they will not even bother to file any claims in Bankruptcy court.  However, if they see suspicious activity they will in fact retain counsel and cause problems.  What would suspicious activity classify as?  That would be purchasing a flat screen tv for $2000 immediately prior to filing for Bankruptcy.  Or going to Europe with your friends on the old Amex about 2 months before you file for Bankruptcy.  In other words it is debt that you have no intention, or could not possibly pay back, when you made the purchase.  It’s a pretty stringent standard but one to absolutely keep in mind.

Filing for Bankruptcy in college is the same as filing for Bankruptcy anywhere else.  So long as you really hit a tough patch in life, you should be ok.  However, if you are doing this to escape legitimate debts or you racked up the card and now think you’re going to get away free and clear, its best to think again.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving a diverse clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester. Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy